AU Optronics : 2020 Annual Report

AU Optronics Corporation

2020 Annual Report

AUO Spokesperson

Name: Benjamin Tseng

Title: Chief Financial Officer

AUO Deputy Spokesperson

Name: Jack Juang

Title: Director of Financial Planning Div.

TEL: [phone]

Email: [e-mail]

Corporate Headquarters, Branches, and Fabs

Corporate Headquarter: No. 1, Li-Hsin Rd. 2, East Dist., Hsinchu Science Park, Hsinchu City

Taoyuan Branch: No. 1, Xinhe Road, Longtan Dist.,Taoyuan City

Address of Fabs:
Fab L3B:	No. 1, Li-Hsin Rd. 2, East Dist., Hsinchu City
Fab L3C(L5):	No. 23, Li-Hsin Rd., East Dist., Hsinchu City
Fab Longke:	No.228, Longke St./No.288, Longyuan 1st Rd./ No.338, Longyuan 1st Rd./ and
	No.338-1, Longyuan 1st Rd., Longtan Dist.,Taoyuan City
Fab Longtan:	No. 1, Xinhe Road, Longtan Dist.,Taoyuan City
Fab Huaya:	No.189 Hwaya Rd. 2, Guishan Dist.,Taoyuan City
Fab Taichung:	No.1, JhongKe Rd./ No.2, Keya Rd./ and No.3, Keya Rd., Xitun Dist.,Taichung
	City
Fab Houli:	No.1, Machang Rd., Houli Dist.,Taichung City
Fab Tainan:	No.36, Keji 1st Rd.,Annan Dist.,Tainan City

Fab Kaohsiung: No.9, Luke 3rd Rd., Luzhu Dist., Kaohsiung City

TEL: [phone]

Stock Transfer Agent

Company: Stock-Affairs Agency Dept. of Taishin International Bank

Address: B1, No. 96, Sec. 1, Jianguo N. Rd, Zhongshan Dist.,Taipei City

Website: www.taishinbank.com.tw

TEL: [phone]

Certified Public Accountant (CPA) and accounting firm for the financial statements of the most recent year: CPA: Hsin-Hai Wei & Chien-Hui Lu

Company: KPMG Certificated Public Accountants

Address: 68F, No.7, Sec.5, Xinyi Rd.,Taipei (TAIPEI 101Tower)

Website: home.kpmg.com/tw

TEL: [phone]

Offshore secondary exchange and disclosure information available at:

Offshore secondary exchange: U.S. OTC market

Website: www.otcmarkets.com

Company code:AUOTY

Company website: www.auo.com

Contents

	Contents
Chapter 1	Letter to Shareholders	2
Chapter 2	Company Profile	5
Chapter 3	Corporate Governance	6
Chapter 4	Capital Overview	48
Chapter 5	Operational Highlights	55
Chapter 6	Financial Highlights	72
Chapter 7	Review of Financial Conditions, Operating Result, and Risk Management	80
Chapter 8	Corporate Social Responsibility	89
Chapter 9	Special Disclosure	100
Appendix 1 Consolidated Financial Statements with Independent Auditors' Report for the	111
	most recent years
Appendix 2 Parent Company Only Financial Statements with Independent Auditors'	222
	Report for the most recent years

AU Optronics

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2020 Annual Report

Chapter 1 Letter to Shareholders

Dear Shareholders,

With respect to the panel industry, the year of 2020 has been full of dramatic turning points. From the beginning of the year, transportation, production, and supply chains were disrupted by the pandemic, and customer orders fell sharply. However, driven by the booming stay-at-home economy, supply could not meet increasing demand, thus leading to a quarter on quarter improvement of the Company's operating results.The Company, on the one hand, must competently address pandemic prevention while maintaining normal operations. On the other hand, it must also flexibly adjust its production capacity and secure its supply chains to meet customer demand. Despite these challenges, AUO's full-year consolidated revenue for 2020 still increased slightly by 0.8% compared with 2019, reaching NTD 270.96 billion. In terms of profitability, the loss seen in 2019 was reversed with an operating profit of NTD 2.08 billion, net profit attributable to owners of the parent company of NTD 3.38 billion, and basic earnings per share of NTD 0.36. This performance demonstrated our indefatigable efforts and the ability to adapt to changes which we have built up over a long period of time.

Looking back at 2020,AUO's strategic value-added results include the following:

Constant innovation in regard to high-end panel products

• 8K bezel-less TV display panel with ultra-highscreen-to-body ratio: Through a new design, the screen bezel is reduced to create the appearance of a borderless screen as if the bezel were removed entirely. The accompanying 8K ultra-high-resolution images offer an immersive and compelling visual sensation that fully meets market demand for top-end home appliances and provides the ultimate choice for brand customers.
• High refresh rate gaming display panel : AUO has launched the world's highest refresh rate 300Hz gaming notebook panel and ultra-high refresh rate 240Hz gaming monitor panel to display clear and smooth moving images. Combined with Mini LED backlight technology, it clearly shows all the details of dark scenes, allowing e-sports players to master the key winning speed in racing and shooting games.With the stay-at-home economy trend driving the gaming and entertainment industries, AUO's gaming display panel shipments have repeatedly set new highs, and its market share has consistently ranked among the top two in the world.
• Micro LED displays: In addition to Mini LED products that have already been mass-produced,AUO further leads the industry in launching the world's highest resolution 9.4-inch flexible Micro LED display. More than 5.5 million Micro LEDs have been successfully transferred to the LTPS flexible backplane, presenting high dynamic contrast performance and high saturation brilliant colors. The characteristics of the flexible backplane also greatly enhance the freedom of product design, making it suitable for applications in vehicles and other products. In the future, it will enter mass production in line with customers' shipment schedules.

AUO is also extending its core display technology into different fields

• Customized display total solutions: With its large free-form cutting technology, AUO is able to break through the conventional rectangular form of screens and can provide customized proportions and sizes such as round or long rectangular screens according to customer needs. These can be used in diverse applications such as double-sided advertising signs, public information signs, art installations, arcade games, etc.The screen not only increases interaction and attractiveness but also introduces novel visual experiences for the viewers. In the future, it is expected to be widely deployed in fields such as smart retail, transportation, and entertainment to enrich the smart application ecosystem.
• Smart healthcare application field:AUO is leading the way with the introduction of high-end 3D surgical display solutions, including 4K polarized 3D display solutions combined with a 3D endoscopic imaging system dedicated to endoscopy and minimally invasive surgery.This allows surgeons to view 3D images with in-depth information during surgery, thereby effectively improving the accuracy and quality of minimally invasive surgery. Further, the 4K naked-eye 3D display with AUO's proprietary eye-tracking system for use in operating rooms allows doctors to watch clear 3D images from all angles without wearing glasses during surgery, and quickly enables them to grasp the relative positions and depth of tissues and organs.

AUO spares no effort in its pursuit of technological development in the circular economy, while also doing our utmost for environmental protection

• By integrating recycled materials into 24-inch desktop LCD panels, AUO became the world's first panel manufacturer to obtain UL 3600 Circularity Certification.

Structural changes in the display industry:

2	AU Optronics
2020 Annual Report

Letter to Shareholders

• The stay-at-home economy remains hot and time spent working at home and in remote learning has been extended. This has kept up strong demand for IT panels and boosted demand for game consoles, fitness equipment, and large-size electronic whiteboards over 85 inches, in turn driving significant shipment growth for related panel products.
• With the gradual popularization of 5G and AI, field applications have become increasingly diversified and highlighted the importance of displays as a human-machine interface.
• In response to the increasing demand for diversification and customization of displays, production capacity no longer stands as the only competitive advantage for panel makers in the future. Continuously strengthening technical capabilities, operational management capabilities, and deepening of customer relationships will be the key competitiveness factors for panel manufacturers.

From an industry supply and demand stand point, some manufacturers have merged or have withdrawn from the market and the speed of capacity expansion has eased gradually. Moreover, the COVID-19 pandemic has progressively altered people's life styles.Whether in terms of working or studying at home, online shopping, entertainment, and so on, panel demand has exhibited strong growth. In the foreseeable future, the panel industry's supply and demand are expected to return to a healthier and rational market mechanism.The Company will grasp opportunities that arise from the industry's structural changes. Furthermore, based on its sound financial structure, and adoption of the "biaxial transformation" strategy,AUO continues its advancement of value enhancement for its customers.

1. Go Premium:
2. • The panel business is the foundation of AUO. The goal of Go Premium is to create product differentiation, lift value per unit, and generate stable profits to support the Company's investments in technology, production capacity, and new businesses.
   • With capabilities regarding customers, technology, and operations that it has accumulated over the years,AUO continues to expand in the directions of high-end and high value-added products.
   • 1. For example, in Mini LED backlights, Micro LEDs, and other advanced technologies, AUO has achieved market-leading results in these areas.
     2. In terms of other relatively matured applications, AUO is also constantly innovating. It continues to be an indispensable partner for customers in high-end production platforms and products such as 8K bezel-less TV display panels, panels for gaming display, LTPS notebook panels, and more.
3. Go Vertical:
4. • With AUO's ultimate strength in display technology, combining with applications in AIoT, the Company will seize the opportunities of digital transformation in diverse fields and industries.
   • The business targets selected by the Company comprise the five major "4+1" fields, which includes "smart retail," "smart healthcare," "smart education," and "smart transportation" as well as AUO's own most powerful "smart manufacturing."
   • AUO is gradually building an ecosystem in each field, fully integrating hardware, software, and services, and providing a full range of products from Panel+ to solving user problems.
   • 1. Take smart retail as an example. In 2018, AUO acquired ComQi, an American digital display signage system and content integrator, and in 2020 it further acquired John Ryan, a financial and retail content promoter, to integrate digital retail content business opportunities. In the future,AUO will combine Space4Money, one of its subsidiaries, to extend its business from Taiwan to the world.
     2. In terms of smart manufacturing, AUO itself constitutes a huge manufacturing field. Over the years, it has optimized production lines and fabs and accumulated a wealth of successful experiences through technologies such as AI and the IoT. In order to transform experiences into services,AUO established Mega Insight and Edgetech in 2018, and partnered with ADLINK Technology, to provide smart manufacturing- related services to external customers.
   • Starting from 2021,AUO has officially demerged its General Display and Public Information Display businesses to the 100% owned AUO Display Plus Corporation, making it AUO's main driving engine for operations in the field economy.
   • AUO has invested resources into various fields over the time, and its efforts have now taken root. In addition to continuing to recruit outstanding talent, the Company will also expand its ecosystems through investments, joint ventures, mergers and acquisitions, or strategic alliances, all with the goal of creating future business opportunities

Becoming an outstanding sustainable enterprise has always been the Company's core goal. In order to be in line with international trends, AUO has linked SDGs to 2025 CSR targets, thereby allowing ESG to develop in a balanced way, building the foundation of its production process, continuing to save energy and reduce carbon and maintaining long- term competitiveness.As verified by KPMG International, the Company's energy saving rate in 2019 reached 2.26%, the

AU Optronics

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2020 Annual Report